Financial Report of Emaar Properties

Financial Report: Emaar Properties

Introduction

The purpose of this report is to present from the consultant’s point of view a challenge faced by a real estate investment firm located in the United Arab Emirates or UAE. For the purpose of this study, two firms were chosen because financial investment information was available from the company investor relation’s department web sites. These investment reports shed light on not only on the competitive nature of this sector but also the volatility involved with such ventures. The competition is fierce for large and small ventures alike. Much of the firm’s success is leveraged against how well the property will be accepted by the public. Performing a financial ratio analysis allows the consultant to delve into the core of the organisation and discover areas of health and illness. A firm called Emaar Properties will be the main focus and analysis for this report, however, another firm with presence in the region was also chosen to support the argument that different firms use different tactics to gain market share. This firm is called Union Properties.

Company Background

Emaar Properties is an industry giant in the region. They are quickly becoming a global leader as the provider of premier lifestyles. It is a young company founded 1997 that have government partial ownership as investors. This organisation is not about just building homes but “value-added, master-planned communities that the homebuyers’ full spectrum of lifestyle needs.”[1]

Challenge

The challenge faced by the consultant with regard to Emaar Properties is how the organisation can remain at the top of their game with respect to investment in high-end resort lifestyle properties. Obviously this is an expectation of the Dubai citizen but the main challenge remains in continuing a unique, creative marketing campaign to present an all-encompassing lifestyle experience without tarnishing the conservative brand and mission of the company. This firm wants to embrace the notion of luxury fun but also must remain fixed in its overall value system. While other smaller real estate firms have broadened their goals to include most demographics with rent to own options, this firm remains entrenched with creating an elite approach to buying and promoting properties throughout the region, Middle East and North Africa.

Solution

The solution to the problem remains focused on the organisation’s intellectual teamwork or its people. How do you measure people and their creativity? How does one know if current marketing campaigns for successful properties are working and still plan to take the world by storm as Emaar continues projected momentum? This begins and ends with analysing previous annual reports to see where the company is best performing and if there are weak areas, how to improve performance. For the purpose of this task and quantifying this solution, Emaar’s 2007 Annual Report is available for perusal. Clearly something is going right for the organisation, as according to Ernest and Young’s report, the company grossed over $6.5 million in profit for 2007.[2] Property sales to customers exceeded $14 million for 2007.[3] Marketing including advertising for 2007 doubled since 2006 which shows increased need for the tool but also possible excessive, poorly engaged tactics? Further analysis is needed.

Financial Analysis

According to Pamela Peterson Drake the best way to assess for financial health begins with understanding if the firm is using its operating resources correctly. The consultant wants to ensure the firm is “applying its assets in an efficient and profitable manner.”[4] When assessing this for Emaar, one must also consider the different segments of the corporation or individual performance but also on a whole. One can apply a simple profitability ration, which will determine if the amount of income reflects accurately the amount of sales. For Emaar, the income out weighs the amount of sales by more than 2 to 1, which demonstrates a healthy and wealthy organisation. Traditionally if an organisation can calculate a ratio of 2 to 1 or assets versus obligations (in the form of expenses, risks etc.),[5] then this means the company will meet these ‘bills’, maintain an excellent credit rating and stock rating with extra for reinvestment or dividends for its investors.

By examining this simply, the consultant can see a relationship forming between the amounts for sales with regard to marketing costs. To go further and more concrete, one would want to determine true net working capital to sales. One would subtract current assets from current liabilities but also divide this by the amount of sales. If this continues the trend of 2 to 1, then the company is healthy and can see a return on investment.

How are other Real Estate Investment Companies in the region fairing?

Upon investigation, there were a few real estate investment firms with information but few with investment information privy without formal request. Union Properties is much smaller than Emaar, both in scope and portfolio, but they are holding their own within a well-defined niche market. While their properties are also considered targeted at the wealthy and successful businessperson, they are opening up the market to new ways of affording such property. They have incorporated the credit option of rent-to-own in order to cater to other demographics. This evident in their earnings report because the year 2007 showed “16% more growth over 2006.”[6] Also the firm’s profit increased by 11 percent or “over AED 684 million.”[7] Clearly the market is still hot but also this company is marketing to more people.

Emaar SWOT Assessment

SWOT stands for strengths, weaknesses, threats and opportunities. As a tool for identifying the well being of an organisation, this analysis offers key management teams tools for implementation of investment strategies for competitive edge in the marketplace.

Strengths

Its leaders and their focus on the overall mission of maintaining the highest quality product/service in the market with continual building of brand and reputation defines Emaar strengths.

Weaknesses

With conservative leadership behaviours come the criticisms that the firm is not embracing every customer as a potential loyal follower. Still this focus remains true to the mission of the organisation and its bread and butter.

Opportunities

As most of the world suffers through a recession, there are opportunities to be found out of other’s bad luck. The UAE is an oil rich nation where the economy is still strong despite the decrease in production and fall of barrel price. With this in mind, Emaar can continue building its luxury communities but also focus on other niche markets as an offshoot of the original mission. The focus can remain central on family and those values. The change in demographic to an upper class patron will allow for new relationships to flourish and ease in transition to other markets like Europe and North America.

Threats

Outside threats include the perceived negative image of the gulf state perpetuated by the Middle East conflicts of present. This limits outside investment but also deters Westerners from travelling to the area unless they have to. Continued portrayal of a positive moral image is important but also the company must remain aware of the financial crisis hurting other areas of the world. This may not be the best time to expose certain markets to such an elite product.

Recommendations

The consultant must be able to give financial advice for future investments in the corporation but also advice that is concrete to the situation. While it is important to perform ratio analysis, one must also see the full picture by researching, investigating all roles of decision-making especially with regard to future marketing tactics and presentation of image. It is important to remain aware of defining moments where change becomes a catalyst but also to remain proactive. Use common sense and communicate the full picture.

ENDNOTES

Emaar Properties: Company Profile, viewed 17 November 2008, <https:// www.emaar.com/index.aspx?page=about>

Ernest and Young (2007), Emaar Properties: Financial Report for 2007, Dubai, United Arab Emirates

Peterson, P D (2006), Financial Ratio Analysis, University of Ohio, Columbus

Porter, M E (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Harvard University Press, Cambridge, MA

SWOT Analysis, viewed 13 November 2008, <https://www.quickmba.com/strategy/swot>

Union Properties: Company Profile, viewed 17 November 2008, <https:// www.unionproperties.com/site/about.aspx>

Union Properties (2007), Earnings Statement Release 2007, Dubai, United Arab Emirates

1

---

[1] Emaar Properties: Company Profile, viewed 17 November 2008, <https:// www.emaar.com/index.aspx?page=about>.

[2] Ernest and Young (2007), Emaar Properties: Financial Report for 2007, Dubai, United Arab Emirates, p. 66.

[3] Ernest and Young (ibid), p. 82.

[4] Peterson, P D (2006), Financial Ratio Analysis, University of Ohio, Columbus, p.1.

[5] Peterson, P D (ibid), p. 2.

[6] Union Properties (2007), Earnings Statement Release 2007, Dubai, United Arab Emirates, par. 1.

[7] Union Properties (ibid).

Cite this page